UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Item 8.01. Other Events.
Alta Acquisition
As previously reported, on July 21, 2021, EQT Corporation (EQT and, together with its consolidated subsidiaries, the Company or we) consummated the previously announced acquisition (the Alta Acquisition) of Alta Marcellus Development, LLC (ARD Marcellus) and ARD Operating, LLC (ARD and, together with ARD Marcellus, the Alta Target Entities). The following exhibits relating to the Alta Acquisition or the Alta Target Entities are attached to this Current Report on Form 8-K and incorporated herein by reference:
| · | Exhibit 99.1: Audited combined financial statements of the Alta Target Entities as of June 30, 2021 and 2020, and for the years then ended, and the notes related thereto; |
| · | Exhibit 99.2: Unaudited pro forma condensed combined balance sheet of the Company as of June 30, 2021 and unaudited pro forma condensed combined statements of operations of the Company for the six months ended June 30, 2021 and the year ended December 31, 2020, and the notes related thereto; and |
| · | Exhibit 99.3: Audit letter prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, relating to ARD Marcellus’s estimated quantities of its proved natural gas and oil reserves as of June 30, 2021. |
Update on Margin Posting Obligations, Hedge Positions and Liquidity
Natural gas is a commodity, and we typically receive market-based pricing for the natural gas we produce. To protect our future cash flows from the risk of unanticipated declines in commodity prices, we utilize exchange-traded and over the counter (OTC) derivative contracts to hedge a portion of our forecasted natural gas production. All of our exchange-traded derivative contracts require us to post margin deposits based on an established initial margin requirement and the net liability position, if any, of the fair value of the associated contracts. Certain of our OTC derivative contracts provide that, if EQT’s credit rating assigned by Moody’s Investors Service, Inc. (Moody’s) or S&P Global Ratings (S&P) is below an agreed-upon credit rating threshold, and if the associated derivative liability exceeds the agreed-upon dollar threshold for such credit rating, the counterparty to such contract can require us to deposit collateral with such counterparty. Similarly, if such counterparty’s credit rating assigned by Moody’s or S&P is below the agreed-upon credit rating threshold, and if the associated derivative liability exceeds the agreed-upon dollar threshold for such credit rating, we can require the counterparty to deposit collateral with us. The cash collateral provided to our hedge counterparties, which is interest-bearing, is returned to us in whole or in part upon an increase in EQT’s credit rating or a reduction in the derivative liability, depending on the amount of such reduction, or in whole upon settlement of the related derivative contract. The significant majority of our OTC derivative contracts provide that, upon EQT obtaining an investment grade rating (“Baa3” or higher by Moody’s and “BBB–” or higher by S&P), we are not required to post margin with the hedge counterparty. As of September 24, 2021, EQT’s senior notes were rated “Ba1” by Moody’s and “BB+” by S&P.
During the third quarter of 2021, we amended our agreements with six of our largest OTC hedge counterparties to permanently or temporarily reduce or eliminate our margin posting obligations associated with our OTC derivative contracts with these hedge counterparties, which serve to mitigate the amount of cash collateral that we would otherwise have been required to post based on current New York Mercantile Exchange (NYMEX) strip pricing. Additionally, during the third quarter of 2021, we entered into certain swaps, swaptions and calls to reposition our 2021 and 2022 hedge portfolio, opening up incremental upside participation in the benefits of rising natural gas prices and further mitigating potential incremental margin posting requirements. As of September 24, 2021, our margin balance on our existing hedge portfolio was approximately $0.6 billion, as compared to approximately $0.5 billion as of June 30, 2021, despite a significant increase in natural gas prices between June 30, 2021 and September 24, 2021.
The following table summarizes the approximate volume and prices of our NYMEX hedge positions through 2024 as of September 24, 2021:
| 2021(a) | 2022 | 2023 | 2024 | |||||||||||||
| Swaps: | ||||||||||||||||
| Volume (MMDth) | 314 | 1,185 | 166 | 2 | ||||||||||||
| Average Price ($/Dth) | $ | 2.39 | $ | 2.69 | $ | 2.53 | $ | 2.67 | ||||||||
| Calls – Net Short: | ||||||||||||||||
| Volume (MMDth) | 43 | 343 | 77 | 15 | ||||||||||||
| Average Short Strike Price ($/Dth) | $ | 2.92 | $ | 2.98 | $ | 2.89 | $ | 3.11 | ||||||||
| Puts – Net Long: | ||||||||||||||||
| Volume (MMDth) | 53 | 183 | 69 | 15 | ||||||||||||
| Average Long Strike Price ($/Dth) | $ | 2.58 | $ | 2.68 | $ | 2.40 | $ | 2.45 | ||||||||
| Fixed Price Sales (b): | ||||||||||||||||
| Volume (MMDth) | 17 | 4 | 3 | — | ||||||||||||
| Average Price ($/Dth) | $ | 2.49 | $ | 2.38 | $ | 2.38 | $ | — | ||||||||
(a) October 1 through December 31.
(b) The fixed price natural gas sales agreements can be physically or financially settled.
For 2021 (October 1 through December 31), 2022, 2023 and 2024, we have natural gas sales agreements for approximately 5 million dekatherm (MMDth), 18 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of $3.17, $3.17, $2.84 and $3.21, respectively. We have also entered into derivative instruments to hedge basis. During the third quarter, we purchased 37 MMDth total of 2022 swaptions with an average strike price of $3.75. We may use other contractual agreements to implement our commodity hedging strategy from time to time. For further discussion of our hedging program, see Item 3., “Quantitative and Qualitative Disclosures About Market Risk” and Note 3 to the Condensed Consolidated Financial Statements in EQT’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.
As of August 31, 2021, we had $0.6 billion in credit facility borrowings and $0.6 billion letters of credit outstanding under our $2.5 billion credit facility.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| EQT CORPORATION | ||
| Date: September 28, 2021 | By: | /s/ William E. Jordan |
| Name: | William E. Jordan | |
| Title: | Executive Vice President, General Counsel and Corporate Secretary | |